WAR LOANS AND INCOME TAX.

New Zealand Herald, Volume LV, Issue 16796, 12 March 1918, Page 4

WAR LOANS AND INCOME TAX.

Sir Joseph Ward replies at length in to-day's Herald to recent criticisms of his free of incomo tax loan flotations. He endeavours to confound his critics by computing the interest cost of taxable loans at 6$ per cent. This is, perhaps unintentionally, an admission that upon his present method he is paying 6£ per cent, to certain purchasers of war bonds. Unquestionably this is so. The wealthy bondholder is, by escaping income tax, making an investment equal to 6i per cent. Yet Sir Joseph Ward claims that he is keeping down the rate of interest. He calls it 4i per cent, and assumes I that the unsophisticated public will j close its eyes to the other facts and believe that the ruling rate of interest is no more than 4A per cent. I As a piece of "camouflage" this is | interesting enough, but it cannot be , seriously claimed that it has any I effect upon the value of money or jupon the public estimate of interest ; rates. It will not be denied that ! if the alternative to free of tax I loans is Gh per cent, the change I would be costly for the country, i But no such alternative has been ! suggested. Australia is issuing taxable bonds bearing only one-half per cent, more interest than those .issued free of tax. Britain makes .a difference of one per cent. Why should it be suggested that the 'alternative is impossible in New J Zealand except at an advance of 2 ■ per cent. ? Nor does it appear that Sir Joseph Ward has complete faith in his own reasoning. If he has why is it necessary to severely limit the issue of 5 per cent, taxable bonds? Following his own method of computation the move these bonds are bought the better it will bo for the finances of the country. A 2s rate of income tax would refund t.i the Treasury the whole of the additional interest, and every holder whose rate of tax was in excess of

2s would be a source of profit to the State. Evidently Sir Joseph Ward is influenced by a fear that without the inducement of exemption from income tax he would not be able to raise the requisite loans. Here his judgment may be sound, but when this is admitted no reason has been advanced for refusing to follow the example of Britain and Australia in offering an alternative issue. In his statement Sir Joseph Ward speaks of Britain— among other countries— obtained a " large portion" of its war money by offering a rate of interest free of income tax. The fact is that Britain showed a wise reluctance to adopt this form of loan flotation. It was first tried last year when the Victory Loan realised £1,000,312,950. Speaking on the success of that loan Mr. Bonar Lawsaid: "Of the amount applied for, I may say that only about £22,000,000 was put as tax free loan, and the rest was in the 5 per cent, loan in the ordinary way." In view of this the Minister for Finance docs not strengthen his case by reference to Britain, nor is there anything in the whole of his statement that in any way justifies him in discouraging the issue of taxable bonds by limiting individual holdings to £500 or under.